Warren at Hearing: Targeting Audits at Wealthiest Americans & Big Corporations Also Reduces Implicit Bias in Our Tax System
Washington, DC - In a Senate Finance Committee hearing today, United States Senator Elizabeth Warren (D-Mass.) highlighted the importance of addressing racial inequities in the U.S. tax code, how implicit bias impacts the disparate auditing of low-income taxpayers, and the importance of ensuring that the IRS has the resources it needs to go after the biggest tax cheats. Senator Warren made a case for her forthcoming bill to provide a mandatory funding stream for the IRS.
A recent report from the Treasury Inspector General found that the IRS is not working the cases of high-income taxpayers who don't file their taxes but collectively owe more than 45 billion dollars. The top one percent of Americans account for more than a third, and potentially as much as 70%, of the taxes owed-but-not-paid. But the IRS's efforts to enforce our tax laws don't focus on these wealthy taxpayers: the agency disproportionately audits low-income tax filers who claim the Earned Income Tax Credit.
In response to Senator Warren's questioning about what auditing lower-income taxpayers rather than the wealthiest individuals means for the racial impact of our tax enforcement strategy, Dorothy A. Brown, Professor of Law at Emory University, said that it means enforcement is "borne on the backs of Black Americans and not where the tax gap is - with higher income white Americans who have access to tax attorneys."
Professor Brown told Senator Warren that mandating the IRS audit the wealthiest taxpayers and the biggest corporations - where there's a huge amount of money going uncollected - could "absolutely" help reduce the racial disparities in the tax system.
"I'm working on to provide a new, targeted mandatory funding stream for the IRS - so that the agency has a predictable, sustained, and protected pot of funds dedicated to ensuring that the wealthy and that big corporations are paying their fair share," said Senator Warren while concluding her questions.
Transcript: Combating Inequality: The Tax Code and Racial, Ethnic,
and Gender Disparities
U.S. Senate Committee on Finance
Tuesday, April 20, 2021
Senator Warren: Thank you Mr. Chairman.
So nearly every component of tax law has a racial equity impact. But it's not just about what tax laws are on the books. It's also about how they're enforced.
So last week, the IRS Commissioner told this committee the tax gap - the amount of taxes owed but not paid - could exceed $1 trillion every year.
The top one percent of Americans account for more than a third, and potentially as much as 70%, of the taxes owed-but-not-paid. But the IRS's efforts to enforce our tax laws, including the audits conducted to check whether a taxpayer is following the law, don't focus on these wealthy taxpayers. In 2019, low-income families claiming the Earned Income Tax Credit made up nearly 40% of all IRS audits.
So Ms. Brown, we audit a lot of lower-income taxpayers, rather than focusing on the wealthiest people. What does that mean for the racial impact of our tax enforcement strategy?
Professor Brown: It means that it's being borne on the backs of Black Americans and not where the true gap is with higher income white Americans who have access to tax attorneys who apparently the IRS would prefer not to push back against so they go after low income EITC claimants who don't have access to tax attorneys to push back. It's very unfair.
Senator Warren: That's right. And professor Brown, am I right that you have looked at what the most audited counties in America are?
Professor Brown: Well ProPublica did research on that and of course I am familiar with that. Yes and they are in rural, Black communities in the South. And in the South it's disproportionately amount the number of Black Americans living in the South. So they have been Black Americans in the South who file the EITC have been targeted when research shows over 50% of EITC claimants were white.
Senator Warren: Thank you, I appreciate it Professor Brown. You know, as your research shows, one reason why is implicit bias - politicians and bureaucrats embracing harmful stereotypes about Black Americans that can lead them to single out EITC recipients.
But there's another piece here too. After years of Republican budget cuts, the IRS targets the people who are the cheapest to audit. And that's low-income taxpayers, many of them people of color.
It is cheap and easy for the IRS to blast out letters to intimidate EITC recipients. But rich people use complicated tricks to evade taxes, so those investigations require time, money, and expertise - things that the IRS is short on.
In fact, a recent report from the Treasury Inspector General found that the IRS is not even working on the cases of the highest-income taxpayers who don't file their taxes at all - but who collectively owe more than 45 billion dollars.
So, Professor Brown, if we gave the IRS a big pot of money and mandated that the IRS spend it on auditing the wealthiest taxpayers and the biggest corporations - targets where we know there's a huge amount of money going uncollected - could that help reduce the racial disparities in the tax system?
Professor Brown: Absolutely. Absolutely. It would make who pays taxes a lot fairer.
Senator Warren: Good. So thank you. You know there's a lot we need to do make our tax system less racist. And one easy place to start is by making sure that the IRS has the resources and clear direction to go after the biggest tax cheats.
I'm really glad that Commissioner Rettig supports the bill I'm working on to provide a new, targeted mandatory funding stream for the IRS - so that the agency has a predictable, sustained, and protected pot of funds dedicated to ensuring that the wealthy and that big corporations are paying their fair share.
It would give us a better, stronger, and more equitable tax system for all Americans.
Thank you, Mr. Chairman.
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